SUMMARY OF BOARD DECISIONS

Summary of Board decisions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue a final standard.

May 18, 2009 Board Meeting

Leases. The Board discussed how a lessor would apply a right-of-use model, and reached the following tentative decisions:

  1. A lessor would recognize an asset representing its right to receive rental payments (a lease receivable).

  2. A lessor would recognize a liability representing its performance obligation under the lease—that is, its obligation to permit the lessee to use one of its assets (the leased item). The lessor will satisfy that performance obligation (and will recognize revenue) over the lease term.

  3. A lessor would not recognize any revenue at the inception of a lease contract.

The Board will discuss at a future meeting:

  1. How a lessor would initially and subsequently measure the leased item, the lease receivable, and the performance obligation.

  2. How a lessor would present the leased item, the lease receivable, and the performance obligation in its statement of financial position.

  3. What differentiates a sale of an asset from a lease.

  4. Whether a lessor would apply a right-of-use model to a short-term or immaterial lease.

Insurance contracts. The Board continued deliberations of its joint project on accounting for insurance contracts. The discussion focused on the risk margins an entity would use to measure an insurance liability and how an entity would account for the costs it incurs to acquire insurance contracts (such as sales commissions and underwriting costs).

The Board discussed several aspects of the accounting for risk margins: (1) the need for a risk margin in the measurement of an insurance liability, (2) measurement of the risk margin, and (3) remeasurement of the risk margin. The Board did not reach any decisions on these issues.

The Board decided that an entity should expense all acquisition costs when incurred. It also decided that an entity should not recognize any revenue (or income) to offset those costs incurred.

Statement 140 implementation: transfers of financial assets. The Board completed its redeliberations of the proposed amendments to FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, modifying certain proposed disclosure requirements and deciding on the effective date and transition of the new guidance.

The Board affirmed its April 1, 2009 decision that in principle, an entity should disclose information about the nature of its continuing involvement in asset transfers accounted for as sales and the effect of such continuing involvement on its financial statements. However, the Board decided that the specific minimum disclosures for transfers of financial assets in which a transferor has continuing involvement should be required only for securitizations, asset-backed financing arrangements, and similar arrangements that are accounted for as sales.

The Board decided that entities should apply the new guidance at the beginning of the first fiscal year that begins after November 15, 2009 (for example, a company with a calendar year-end would apply the new guidance beginning on January 1, 2010). At that effective date, entities are required to evaluate each existing qualifying special-purpose entity and determine whether it should be consolidated. Entities are required to provide the expanded disclosures to both new and continuing transactions. Early adoption is prohibited.

The Board directed the staff to proceed to a draft of a final Statement for vote by written ballot.

Reconsideration of Interpretation 46(R). The Board completed its redeliberations of the proposed amendments to FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities. The Board discussed the following three matters:

  1. The effective date for the proposed changes

  2. Whether to provide a measurement alternative upon transition to the new requirements for the assets and liabilities of newly consolidated variable interest entities when it is not practicable for a reporting enterprise to determine the carrying amounts of those financial assets and liabilities

  3. Whether an entity is permitted to elect the fair value option for financial instruments within the scope of FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, upon transition to the amended guidance.

The Board made the following decisions:

Effective date. The Board decided that an enterprise will be required to adopt the new requirements as of the beginning of its first annual reporting period that begins after November 15, 2009, and interim and annual reporting periods thereafter.  Earlier application is prohibited.

Transition. The Board decided to add the following additional transition measurement alternative following the guidance that requires fair value measurement if determining carrying value is not practicable (subject to drafting):

    However, if the activities of the entity are primarily related to securitizations or other forms of asset-backed financings and the assets of the entity can be used only to settle obligations of the entity, then the assets and liabilities of the entity may be measured at their unpaid principal balance at the date this Statement is first applied. This measurement alternative does not obviate the need for the primary beneficiary to recognize accrued interest, an allowance for credit losses, or an other-than-temporary impairment, as appropriate. Other assets, liabilities or noncontrolling interests, if any, that do not have an unpaid principal balance shall be measured at fair value.

The Board concluded that a reporting enterprise electing this measurement alternative will be required to disclose the amount and presentation of the assets and liabilities initially recognized at their unpaid principal amounts.

Fair value option. The Board decided to provide a fair value option at transition to the new requirements. That option would apply on an entity-by-entity basis, meaning that an enterprise can elect to measure at fair value all eligible assets and liabilities of a newly consolidated variable interest entity. Eligible items are prescribed within Statement 159.

The Board decided that an enterprise electing the fair value option should disclose its rationale for electing the option for certain entities as well as the impact of that election on the cumulative-effect adjustment to retained earnings.

The Board directed the staff to proceed to a draft of a final Statement for vote by written ballot.